A new panel report is out that addresses yet again the question of whether, and if so when, a Member can disregard “distorted” costs in determining normal value (and replace them with higher “undistorted” costs). EU-Cost Adjustment Methodologies, DS494. This issue has now been taken up in four WTO disputes, including by the AB on two occasions. What strikes me is how little we have learned.
Article 2.2.1.1 of the ADA tells us that costs shall “normally” be calculated based on the records of the exporter or producer, provided they meet two conditions (i) they are consistent with GAAP, and (ii) they “reasonably reflect the costs associated with the production and sale of the product under consideration”. In EU-Biodiesel, the AB rejected the idea that the second condition allows a Member to reject costs because they are unreasonable, for example, distorted. This approach has been adopted in three subsequent disputes. However, the AB left open the possibility that the term “normally” might allow a Member to disregard reported costs in other circumstances, even where the two conditions are met.
In EU-Biodiesel, the EU did not invoke the “normally” language as a defense, and while the AB gave some hints regarding that language they did not rule on it. In subsequent cases, however, panels and the AB have declined to interpret and apply this language, even though it has been invoked by the defending Member, on the grounds that it represented an ex post rationalization, and was not the stated basis for the underlying determination.
For me, there is a real question as to whether a Member must invoke the WTO basis for its actions in a determination, as opposed to simply explaining the factual and legal basis under its national law. But panels clearly have been cautious not to open this kettle of fish until they have to, which is perhaps a good thing. That said, the fact remains that the WTO consistency of disregarding “distorted” costs will not be resolved until this language is addressed.
The non-expert reader may be asking whether he/she should care about such an arcane question. The answer is a clear yes. The resolution of this question will tell us whether anti-dumping is a tool to address situations where exports are sold below home market price or cost, or whether it is also a tool to address government interventions in the market, rather like countervail but broader, because those interventions need not be specific subsidies. In a sense, therefore, the future of antidumping relies upon the meaning of a single word, “normally”. Stay tuned.
